Shutterstock Stock Profile
This week I am profiling content company, Shutterstock. I use stock photography every week for this blog and for The Capital Pink Instagram account. Having access to this service is vital to putting out an attractive product that isn’t just words. Unless you have the time and ability to take amazing photos or create stunning illustrations on a regular basis, stock content is going to be a must for your website, blog, Instagram account, etc. Shutterstock (and what a great name for this business right?!) is a paid service, so I have yet to use it given the variety of free stock photography available on the internet. After reviewing Shutterstock’s investor material online, it appears they differentiate themselves from the free offerings by presenting themselves as a provider of high quality products with a focus on customer service and custom content. They perhaps appeal to larger organizations that require lots of easily searchable, high quality content with customer support available. Such organizations are usually fine with spending some of the marketing budget on stock content.
However, I have found great success using the free services (Unsplash, Pexels, Burst, StockSnap.io, etc.) . The sites usually suggest you credit the creator (which I always do) and the site makes its money by other means, mainly advertising. At this point, my content requirements have not gone beyond the need for some stock photographic images, however, in the future I may need Shutterstock if I need something beyond stock images.
· As stated many times on this site, I, nor ZSM Creative Inc. operating as The Capital Pink, are financial advisors and have no financial accreditations. I am applying some basic evaluation tools to this stock along with some commentary, but this should only serve as a starter for your further research. The information below is only current to the day this post was written which may or may not be the same day as this post was published so please update the ratios and numbers to the current day before relying on them as they may have significantly changed (see How Do I Evaluate a Stock? (Part One) for information on where to find the ratios and numbers online). Please read my Legal Disclaimer. Also, I do not own Shutterstock stock and am not affiliated with them in any manner.
What is Shutterstock?
Shutterstock provides content to a broad range of businesses: ad agencies, Fortune 500 companies, freelancers, publishers, small businesses and bloggers. It has customers in nearly every country and has over 800 employees. It provides stock images, music, videos and other such content for use by companies in the production of such things as advertising, promotions, education, corporate presentations, etc. As is evident from the explosion of YouTube, one of its leading areas of growth is the use of content for video internet advertising. It has a diverse customer base and diverse image usage – its top 25 customers make up less than 2% of revenue and its top 25 downloaded images make up less than 1% of its revenue.
Shutterstock Custom was launched in 2017 and is clearly a growth area for the company. It provides a custom content creation service for customers. This would obviously be a value-added feature that one does not necessarily get from the free services currently available.
Other relevant points regarding Shutterstock’s business:
· 2018 trends as identified by Shutterstock: fantasy, holographic foil, new minimalism, space, cactus, natural luxury, a Global March, ancient geometrics, cryptocurrency, punchy pastels and digital crafts;
· Annual revenue is growing – up from $557 million in 2017 from $494 million in 2016;
· Paid downloads were up in 2017;
· Content offerings include: Shutterstock – digital imagery; Bigstock – separate library of more unique imagery; Offset – high-impact imagery from top assignment photographers and illustrators from around the world (think National Geographic); Shutterstock Custom – custom high-quality work; Shutterstock Editorial – editorial imagery such as entertainment, sports and news images; Shutterstock Music – audio tracks and sound effects;
· E-commerce customers purchase content directly from the Shutterstock websites on a monthly or annual subscription with an ability to purchase content a la carte as well. Enterprise customers are mainly creative professionals and large organizations which require a more dedicated support team. Other customers come from content licensed elsewhere or through its Webdam service;
· Revenue mainly comes from the E-commerce customers;
· Content is provided by creators around the world and vetted by Shutterstock’s proprietary technology and review team; and
· Operates in a competitive and rapidly changing industry. There are various content creation websites out there with which Shutterstock must be constantly trying to evaluate and differentiate. Interestingly, none of the free stock websites I am familiar with were named as competitors in its investor material. It is difficult to imagine why such services would not be a prime competitor in the e-commerce side of its business.
Shutterstock may be facing an uphill battle with the vast amounts of free content now available on the internet. However, if it can maintain its focus on large customers that can afford premium prices for high quality content, ease of use and customer support, it may be able to weather the storm. Further, video content production is a growing area that it can perhaps distinguish itself.
What is Shutterstock stock doing?
As at July 16, 2018, the numbers from our basic stock evaluation tools are as follows:
Share price: $51.23 USD
One share of Shutterstock would cost $51.23. The price over the past 52 weeks has ranged from $29.85 to $52.78. So, it is trading rather close to its 52-week high.
Price to Earnings (P/E): 44.63
Recall this is the stock price divided by the earnings per share. If the P/E is high, you should expect to get some growth for having paid a bit more for the stock however, it could indicate the stock is overvalued. The Index P/E is 20.39 so Shutterstock is quite higher than the index. It is helpful to compare the P/E with other competitors but unfortunately, most online sites no longer off that information free of charge. This rather high P/E ratio suggests investors are looking for growth which fits with Morningstar's characterization of it as a small growth investment style stock.
Dividend Yield: N/A
Dividend paying stocks are something many investors look to buy as they are like an interest rate on your shares. Dividend payouts are discretionary. Dividend yield represents the amount the company pays out in dividends relative to its share price. While a higher dividend yield is usually more desirable, you still need to consider the health of the underlying company before making a generalization either way. It appears Shutterstock is not paying a dividend at this time.
Earnings per Share (EPS): 1.20 (TTM)
This figure will tell you a great deal about the growth of the company. It takes what the company earns and divides it by the number of shares outstanding. It is essentially the profit allocated to each share of the company. The bigger the number the better because the more the company earns, the more attractive it is to investors. EPS that is increasing every quarter shows earnings momentum and shows growth potential. Shutterstock actually has had decreasing EPS since 2012 (with a small uptick in 2016) but it looks like it is set to go back up this year at 1.20. Still, this decreasing EPS is cause for further research into why this figure was consistently going down.
Revenue: $579.91 Million (TTM)
Increasing revenue is a good sign that the company is growing. Shutterstock’s 5-yr average revenue growth is 26.85%. It has had significant growth since 2013 when it had revenue of less than half of the current TTM revenue at $235.52 Million.
Return on Equity (ROE): 13.49% (TTM)
ROE tells you what sort of return the company is getting on the shareholders money. An increasing ROE is a good sign. Shutterstock’s ROE has bounced around with a dip down in 2017 to 5.56 whereas it is now up to 13.49%. This is a decent ROE.
Market Capitalization: $1.7862 Billion
Recall that small cap stocks usually have the most room for growth as opposed to large, established, stable large cap companies and medium fall somewhere in the middle. Morningstar characterizes Shutterstock as a Small Growth investment style stock. It would be considered a small to medium cap stock.
Net Profit Margin: 7.36% (TTM)
This ratio tells us what profit is left over after the company pays its expenses for the year. The more money it keeps, the better. High net profit margins mean that a company is good at keeping profit after expenses are paid, which may mean they are adept at keeping their expenses down. It is a good idea to compare these over an industry to see what companies are good at operating and maintaining a high net profit margin. The index net margin is 13.44% so Shutterstock is considerably less.
Free Cash Flow per Share: 1.29 (end of 2017)
Recall that this number is the cash flow through the business divided by the number of shares outstanding. It represents the net cash a company can produce per share and many investors consider this a better indicator of a company’s health than the more popular, earnings per share ratio because it is more difficult to manipulate cash flow numbers than it is earnings numbers. A higher value usually indicates the company is in a healthier position. It shows the cash that the company actually holds that could be distributed out to shareholders without impacting the continued development of the company.
This ratio should be considered along with the EPS figure for a better picture of the company’s health as there should not be a wide discrepancy between the two figures. If there are large variances between those numbers, you may want to consider if there were large, non-recurring one-time items that account for the large variance. It is also wise to look at a company’s cash flow picture in the long term as that should take into account one-time, large capital expenditures (money spent by a company to buy or maintain an asset like land, buildings or equipment, i.e. “fixed assets”) that required large amounts of cash. A low free cash flow per share could also mean the company is earning less profit. Shutterstock’s has remained fairly consistent since 2012.
Price to Sales (P/S): 3.11
This ratio compares the total market value of the company with its sales revenues. There is not a great deal of manipulation a company can do with its sales data, so this can be a good indicator of how well the company is doing. Recall that a lower ratio relative to its peers in the industry can indicate a potentially good investment opportunity. Morningstar indicates the index is 2.11 and unfortunately, we do not have the comparison data.
Price to Book (P/B): 4.99
This compares the stock price with how much the stock would be worth if the company was liquidated or sold off. It is the value of the stock in comparison to the underlying assets of the company. Thus, a low P/B relative to the stock price suggests you are not paying too much for what would be left over after such a sell off. Morningstar states that the index for P/B is 3.04.
Price to Cash Flow (P/CF): 16.10
Having cash left over after expenses are paid off is crucial to remaining in business so this is a good indicator about the health of a company. Generally lower is better as it could indicate the company is obtaining large cash flows not yet reflected in the stock price. Morningstar indicates the index is 13.58. Shutterstock is higher than this but not alarmingly so.
It will be interesting to see where Shutterstock heads in the next few years. The area of content sharing is moving extremely fast and, with more and more AI moving into the space, it will remain to be seen whether it can keep adapting and changing such that the business remains profitable. It is easy for people to share content over the internet so finding a way to rise above all of that and provide a product that adds value is no easy feat.
*** Top photo by Ruben Bagues on Unsplash